Podcast: When and How to Open a Business Account
In this episode of Money Smarts, a podcast of Summit Credit Union, learn what to do when your side hustle becomes a small business. Our financial experts share insight on how and when to open a business banking account. Plus, find out what other types of help your financial institution can provide when your hobby grows into a business.
AMY CROWE: Welcome to Money Smarts, a podcast of Summit Credit Union, where we connect people and inspire action to create member and community wealth. As a not-for-profit financial cooperative, Summit Credit Union exists to improve our members' lives and help them reach their dreams. Our Money Smarts podcast is just one way we engage members in the community in conversations about money that inspire you to spend smart, save more, and take action to build a richer life.
Welcome to Money Smarts. My name is Amy Crowe and I’m the financial education specialist at Summit Credit Union and your host for our time together today. We are delighted to have Myrphy Vaughan, a lending advisor at Summit Credit Union’s Rimrock Road branch and a season nine Project Money coach with us today. Welcome, Myrphy.
MYRPHY VAUGHAN: Thank you. Happy to be here.
AMY: Well, Myrphy, we invited you into the studio today because we wanted to talk a little bit about how you help members open business accounts and give them tips and tools on how to manage that. And, given your recent experience guiding our Project Money participant, Venus, and how she manages her business accounts and how she’s growing her small business through the Project Money program, I thought that you could give us some of your wisdom today.
MYRPHY: Yeah, definitely.
AMY: All right. So tell me a little bit about Project Money.
MYRPHY: Yeah. So Project Money is a way, a program for us to help members save as much money as they can and reduce as much money in debt as they can. And, then they all compete to win $10,000, which is pretty cool.
AMY: And the other ones get $2,500 I’ve heard.
MYRPHY: Yes, so there’s all winners.
AMY: There’s four participants.
MYRPHY: Four participants every year, yep, you got it. But yeah, so it’s a really cool program. And they get, each contestant gets to work with a coach one-on-one, meeting at least on a monthly basis throughout the whole program up until the end when they announce the winner.
AMY: Awesome. So tell me a little bit about your Project Money participant in Venus this year.
MYRPHY: Venus is amazing. She’s an entrepreneur. She basically decided one day to just quit working, quote, the real jobs and decided to just go for her dreams of becoming a personal training and wellness coach, and she’s been doing it ever since. So we’ve definitely been working quite a bit on her business side of things, of getting personal and business separated, and it’s one thing that she’s really excelling at.
AMY: Oh, that’s awesome. And for those of you who are listening, Summit Credit Union offers a variety of accounts to help small businesses manage their business, everything from savings accounts to checking accounts to loans to lines of credit. And, to tip our hats a little bit, we are the number-one small business administration lender among credit unions in the state of Wisconsin, so pretty excited about that.
MYRPHY: Super excited.
AMY: Myrphy, let’s start by talking about, if someone has a business idea, when do you advise them to open up that business checking account or business savings account?
MYRPHY: Yeah, so I would definitely say as soon as you’re having expenses or having checks written to you, to your business, because you want to make sure that if this does grow, that you have that separation between just, you know, cash under the table for a hobby or whatever the case is. So I would say the sooner the better.
AMY: It’s really not a good idea to co-mingle your business and personal finances, even if it’s something small.
MYRPHY: Yeah. I would say early on. You want to have that business account set up so that you can start to keep your business expenses separate than your personal expenses. If you know you’re going to be getting checks written to your business, you have to negotiate them under your business name. So unfortunately, you can’t just bring a check in written to XYZ company and put it in your personal account. That also makes it easier for you when you’re trying to figure out how much money you’re really spending on your business and the expenses that are going out. You want to keep that separate.
AMY: Well, what does someone really need to open up a business account? It sounds a little complicated.
MYRPHY: Yeah, it’s not bad. So at Summit, for sole proprietorship, which just means that you’re using your Social Security number to run the business, you would just need a photo ID, your current address, your Social Security number, and your business name, so pretty basic stuff.
AMY: Oh, well, that’s super easy to do then.
MYRPHY: Yeah, exactly. And now, if you get a little more involved, and your business starts to grow, and you become an LLC, a limited liability corporation, then you’re going to need a little bit more. And, that’s when you are a registered business with the state. You get what’s called an EIN number, which is basically a Social Security number for your business. And then, that number then takes the responsibility for your business, opposed to your Social Security number, so it kind of keeps it separate. And, if they do come in for that LLC account, you’ll need the things that I already listed, which were the photo ID, address, your Social Security number. Then you’ll need your EIN number and any confirmation that you have from the IRS showing it.
AMY: How long does something like that usually take? Like how do you, what’s a typical conversation with a small business owner who comes in who wants to kind of set this stuff up?
MYRPHY: Yeah, so in an initial meeting, I would say, block yourself for about an hour of time at the credit union. If you are starting from the ground up, I can help you even pull up the online website to establish your EIN number. It’s an immediate thing so you can do it right online and get your confirmation right away, which is awesome.
AMY: That’s super cool.
MYRPHY: I know. It’s super nice. And then the account is just like opening a personal account. It’s very easy to do. We try to make it as painless as possible. We get you set up with all the online access and everything as well, so super easy.
AMY: Do you start talking to them about goals and dreams and what other things they might need?
MYRPHY: Well, of course, it’s Summit Credit Union. So yeah, we definitely talk about the vision for their business and, you know, where they see it in the very near future, let’s say three months, six months, a year, five years, whatever the case is. And we also work directly with our business lending department, so if they are in the thought that in the future they’re going to need a loan for machinery or something like that, we can get them set up in the beginning to be able to do that later on.
AMY: Oh, that’s awesome.
AMY: Well, what are some things that you’ve been working on with Venus as she’s in her journey with Project Money? I know that she started working with you, and she was actually co-mingling her finances.
MYRPHY: Yes, she was.
AMY: Do you have some standard tips, tools, practices that you advised her on?
MYRPHY: Yeah. So with Venus, when I first started meeting with her, she was very honest and said, you know, wherever money is, I pay my bills from. So we had to make a very strong break between her business and her personal finances. And then once we did that, we started to, I started to give her homework to talk to a tax adviser to see how taxes are going to affect everything with the business. She also met with someone to talk about business planning. So, I gave her some resources that she could reach out to people, network-wise, things like that to help her move in the right direction.
AMY: So she kind of had her business account set up, and she kind of had her personal account set up. Then what did she, what was her, what did she do to separate it? Like what was her thought process in that?
MYRPHY: Yeah, so the biggest thing was she had to pay herself. So she put the money in her business account and then we got her to the point where she would literally write a check from her business to her personal account as her, quote, paycheck. And then, from there she could pay all of her personal bills. Anything she had left in her business account she could allocate to savings or pay any business bills that she had coming out. So that was the biggest thing for Venus.
AMY: Well, we shared in the beginning of the podcast that there’s lots of local resources, and you kind of alluded to the tax adviser as a resource that she could potentially look to. What was her experience looking to those local experts to help her with her business? What did she share back with you in those Project Money coach meetings?
MYRPHY: She was ecstatic. She said it was one of the best tips she had ever been given to talk to a tax adviser, and she found one that they connected. They worked on a business plan. She said it was huge for her business and growth.
AMY: That’s amazing. So, it’s kind of cool because there’s so many resources in the Madison and Milwaukee area that people can use to get information to grow their businesses, to run their businesses, to manage their financials, to everything from marketing, to creating a business plan, to making connections. I know that we have the Small Business Development Corporation based out of the UW Madison School of Business. I know that they do classes and have consultations that they can do for people. I think they even have an answer line.
MYRPHY: Which is awesome.
AMY: But I’ve also heard about WWBIC.
MYRPHY: Yeah, WWBIC, the Wisconsin Women’s Business Initiative Corporation. They have classes, help with business plans, and then they help people just learn ways of financing.
AMY: Well, Summit finances businesses as well, and it’s one of those things too, where we have several business lending officers, and you alluded to the fact that, you help with the savings and the checking account. And what are some lending things that you can help someone do? And then, we’ll talk a little bit about what our business department could do.
MYRPHY: Yeah, so as far as lending right away in my office, it would be, I can help you get, establish a Visa credit card for your business, overdraft protection. I can help you fill out your financial statements to start loan processes, and yeah, then it goes a little more in depth with the business side.
AMY: Well, I know too with our small business folks, you can set an appointment right online with them. We have a new part of our website, right up on the top. I think it’s Connect, where you can actually connect with them. And, you can see what branch you want to meet them at. And, I know one thing that I’ve done when I’ve talked to them is they talk about, even if you’re a year out from getting a big loan, to talk with them about your business plan, to talk about your financing. And, how does personal credit weigh into all of this? Because if you want a business loan, I’ve heard that your personal credit is a huge part of that.
MYRPHY: Definitely, because even though it’s your business, you’re still the one that’s going to have to make those payments. So we have to be able to prove that, you know, you are responsible with your current credit and can take on the credit for the business. So, we have to make sure that everything is in line.
AMY: Well, and I think it’s building a relationship too, because you want to be able to ask questions and e-mail somebody and say, hey, I just got a quick question about this, or there’s an issue. So I think, building relationships with people at financial institutions will really help you create a comfort level when you’re starting this kind of very scary new adventure in your life.
MYRPHY: Oh, 100%, yeah, just like buying a home. You want to meet with somebody, you know, at least six months to a year in advance. You want to know what you have to do and what steps you have to take to get into the right position for where you want to be. We do free meetings. There’s no charge for you to come in, but yeah, like Amy said, you can do it right online, which is nice.
AMY: And I have to correct myself. It’s not Connect, I think it’s Meet, is how you go on our website.
MYRPHY: Oh, I think you’re right.
AMY: Well, Myrphy, thank you so much for sharing your insight on how to start a business account at a financial institution and a little bit about some of the services that we offer for businesses that are just starting up or kind of continuing to grow. So thanks so much for your time.
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